Capitalist Corner

October 02, 2006

Wal-Mart Gets Mean

Hopefully, folks aren't getting tired of hearing me talk Wal-Mart, as odds are the chatter won't let up anytime soon. How could it, when each new day brings news this worrisome? Word from the retailer now is that Wal-Mart is set on converting its workforce to a heavily part-time, salary capped, labor pool.

Workers will never receive annual raises if their pay is at or above the cap, unless they move to a higher-paying job category. Wal-Mart says the caps will encourage workers to seek higher-paying jobs with more responsibility.[...]

No matter how hard people work, “we won’t get anything else out of it,” said Mr. Gonzalez, who earns $11.18 an hour, or about $23,000 a year, after six years with Wal-Mart. “The message is, if I don’t like it, there is the door. They are trying to hit people who have the most experience so they can leave.”

In the confidential memo sent to Wal-Mart’s board last year, M. Susan Chambers, who was recently promoted to be Wal-Mart’s executive vice president in charge of human resources, questioned whether it was cost-efficient to employ longtime workers. “Given the impact of tenure on wages and benefits,” she wrote, “the cost of an associate with 7 years of tenure is almost 55 percent more than the cost of an associate with 1 year of tenure, yet there is no difference in his or her productivity.”

Meanwhile, investment analysts and store managers tell the New York Times that Wal-Mart wants to double the proportion of its workforce that's part-time, moving it from 20 percent to 40 percent. Part-time workers, of course, make lower wages, are offered stingier benefits, and must work at the company's pleasure -- they've neither stability nor agency in their hours. Welcome to Wal-Mart's policy of "open availability," which demands 24-hour availability for work and puts those who decline or can't make it on the bottom of the list for future hours. All of which is just great for parents -- they'll have neither enough time or money to properly care for their children.

So Wal-Mart is not only demanding that work takes total primacy in the lives of their employees, but if the employees have the gall to accept the deal and do their best, they're capping salaries in order to ensure the position doesn't mature into decent wages and worthwhile benefits. These are the labor practices of the largest employer in the world, and these are the labor costs every competitor -- from supermarkets to clothing centers to hardware stores -- will have to compete against. Which they will do by aping them -- there's no other way to survive.

Folks forget sometimes that unions aren't just there to argue for better benefits and salaries, but better working conditions, more stability in hours, more respect for seniority, easier interfacing between family and work. They exist, in other words, to ensure that employers uphold their end of the "work hard and get ahead" bargain. Except, unions don't really exist anymore, and they certainly don't at Wal-Mart. And this is the result.

Comments

Wal-Mart wants a large and constant turnover of employees to avoid employee tenure. In any given location, does the pool of part-time level employees exist to support this policy over time?

Posted by: gonzoknife | Oct 2, 2006 1:04:09 PM

Well, gonzoknife, in most locations there will be, if we keep running the economy in first gear.

Of greater concern is the admission from the US's largest employer that there are no ongoing productivity gains available from the workforce in general after they have been working for a year. Productivity gains are how a country is able to have ongoing real wage increases without cost inflation.

Most of us, whether we work as secretaries, teachers, computer programmers, lawyers, etc. are about as good as we are going to get after 5 to 10 years of doing the job. Beyond that, our employers are basically paying us for seniority. This is why most large organizations have pay ranges -- to accomodate people in the same job but for widely varying lengths of time.

Ezra conveniently forgot to mention that Wal-Mart claims its policy is to give workers three weeks notice regarding their schedules. The anecdotes to the contrary in the article I suspect can be attributable to individual store or department managers acting on their own which they should be held accountable for. We shouldn't forget that Wal-Mart has over 1 million employees in the U.S. alone. In any city of that size, there are bound to be some bad actors. Furthermore, Wal-Mart continues to receive seven applications for every opening for jobs in new stores. It is also worth noting that customer traffic in stores like this varies enormously by time of day and day of the week. To serve customers adequately, including keeping wait times at the cash register reasonably short, it is necessary to employ a lot of part timers. As Wal-Mart moves into more urban and suburban areas, these dynamics may be different from Wal-Mart's experience in more rural markets. I don't know. I also don't know what Target's percentage of part timers is, though it would be relevant to the discussion.

I have said before that I am not a big fan of Wal-Mart, but the articles posted here are starting to sound like they are written by a shill for the Food and Commercial Workers Union.

Posted by: BC | Oct 2, 2006 1:42:39 PM

“the cost of an associate with 7 years of tenure is almost 55 percent more than the cost of an associate with 1 year of tenure, yet there is no difference in his or her productivity.”

Utter crap. Ooh, look, here's more:

Most of us, whether we work as secretaries, teachers, computer programmers, lawyers, etc. are about as good as we are going to get after 5 to 10 years of doing the job. Beyond that, our employers are basically paying us for seniority.

These statements are brought to you by the Department of Pulling Numbers Out of Our Asses.

Starbucks has a cap on barista wages that varies according to geographic location. Pay increases are based upon review scores, so whenever a capped barista gets reviewed, the pay raise they qualify for is sent to them as a lump sum check for the review period. It's still kind of crappy for the baristas, since their wages don't build, but it is of course more than Walmart will do.

Posted by: Stephen | Oct 2, 2006 2:00:15 PM

The thing about "Wal-Mart says the caps will encourage workers to seek higher-paying jobs with more responsibility" is that there are a small number of those jobs compared to the number of the lower-paying jobs.

A store with 10 departments might have 1 store manager, 3 or 4 assistant managers, 10 department managers, and 150 low-level employees. That's not very good odds for the low-level staffers looking to move up.

Posted by: fiat lux | Oct 2, 2006 2:04:12 PM

Long time workers do have increased productivity, but not the kind that Wal-Mart can monetize.

Someone with 7 years of experience can tell you where something is faster, they know what a confused customer looks like, they know how to make get you out of that warehouse faster.

But Wal-Mart doesn't make any money on those types of activities - just stock the shelves and get through the lines.

Wal-Mart is experiencing severe growth problems - all the easy stuff (fast expansion, getting suppliers to make concessions) is more or less over. So, move to part time workers. Don't expect the awful shopping experience at Wal-Mart to get any better.

Encouraging the overweight American public to consume a little less, which results in more savings than mega-buying at Wal-Mart, and the rest of us to totally avoid the place might put a stake through this demon.

Posted by: pebird | Oct 2, 2006 2:09:02 PM

Kind of funny the parallels with GM. Both have been putting the screws to suppliers with them to improve margins (or cut losses). Both seem to be unable to raise prices. Now the workers are being hit. Of course there is a cheering section for whatever anti-worker provisions are pushed though. What a country.

The anecdotes to the contrary in the article I suspect can be attributable to individual store or department managers acting on their own which they should be held accountable for. We shouldn't forget that Wal-Mart has over 1 million employees in the U.S. alone. In any city of that size, there are bound to be some bad actors.

Bwahahaha. I'm always incredibly suspicious when a big company points to its policy and says that bad actions are the malfeasance of individual managers; when those actions are taking place at a lot of different locations ("many workers interviewed" in the article), it's usually at least the product of under-the-table pressure. Are any managers ever disciplined for violating this policy? Do workers have a safe anonymous way of complaining about violations.

As for the 1 million employees, if you're saying that these problems are the result of a few bad apples among management then you should be counting the number of managers, shouldn't you?

More part time jobs means more jobs for those who have the most trouble getting jobs: young people.

Why are liberals so anti-teen? If they had their way, anyone under 18 would be barred from the workplace.

Posted by: Adam Herman | Oct 2, 2006 3:23:49 PM

BTW, teens can't join a union. Just so you know, while we're busy trying to make teen unemployment higher than it already is.

Posted by: Adam Herman | Oct 2, 2006 3:24:41 PM

Some accuracy please?

When did Wal~Mart surpass the US Federal Government as the largest US employer? Even without the US Postal Service the feds are bigger. Maybe add the military on top of all of that, plus TVA, etc. and you are talking real numbers.

Perhaps they now employ more than the Indian Railroad and Postal Service, but not really sure of that one either.

Perhaps they are the US largest private employer, maybe even the largest private employer in the world, but they certainly are not the largest employer.

I'm not so sure Wal Mart couldn't monetize those tenure-associated forms of productivity. After all, they make the shopping experience better for customers, and there is a large literature in management that argues strongly in favor of a link between the job satisfaction of front line workers, customer experience, and value creation for the enterprise.

Moreover, its important to distinguish between the interests of shareholders and the interests of corporate bureaucrats. There is plenty of evidence that high rates of turnover in the service industry is wasteful from the perspective of investors, since it involves managers spending lots of time looking at job applications, interviewing people, training, etc. These are essentially fixed costs per position, so higher turnover will dramatically increase these costs. But what are costs for the investor are job opportunities for managers and other corporate bureaucrats. The author if this memo, as a member of Wal Mart's vast bureaucracy, has an interest slanting the analysis of worker productivity in a way that increases the number and security of managerial jobs, even if shareholders would be better off with lower turnover and more productive front line workers.

Posted by: Rich C | Oct 2, 2006 4:22:30 PM

Posted by: Guy Montag | Oct 2, 2006 12:31:37 PM Perhaps they are the US largest private employer, maybe even the largest private employer in the world, but they certainly are not the largest employer.

Yes, good catch, the largest private employer.

And it warms the cockles of my heart, Guy, that you are relying on productivity improvements out of government employees to provide the economic wave for Wal-Mart to ride upon.

Posted by: BC | Oct 2, 2006 10:42:39 AM Most of us, whether we work as secretaries, teachers, computer programmers, lawyers, etc. are about as good as we are going to get after 5 to 10 years of doing the job. Beyond that, our employers are basically paying us for seniority. This is why most large organizations have pay ranges -- to accomodate people in the same job but for widely varying lengths of time.

But if the firm is seriously pursuing competitive advantages, it will understand that the productivity that is "portable" with each employee is susceptible to being bid away by rivals, while the capacity to improve both product and productivity that is embedded in the company culture is very hard to copy or bid away.

That is why the Wal-Mart economy is an economy of low and stagnant wages for most participants - the Wal-Mart economy is the economy of many middle income nations, where the low-wage unskilled workers are just a standardized commodity, and high value-added, high-skilled work is reserved for a very few.

First, regarding work schedules, I am 99.9% certain that Wal-Mart and other large retailers have enough historical information about customer traffic patterns to be able to plan their labor requirements weeks in advance. The biggest uncertainty probably relates to how many employees might be out sick on any given day. Even then, large stores likely employ a number of floaters who can be assigned where they are needed. I know for a fact that Target trains all employees in the operation of the cash register, so people can be called from anywhere in the store to open additional registers when required. If people need to be called in on short notice, there is no reason why this could not be on a voluntary basis. Store managers who expect employees to be on call 24 hours a day whether they want to or not should be called to account, especially if it is contrary to company policy as Wal-Mart claims.

On the issue of opportunities for advancement, there are relatively few management positions relative to total store employment in large "Big Box" store like Wal-Mart and Target. However, the entire industry has always experienced very high employee turnover for lots of reasons. Retailing, along with restaurants and hotels have always been low wage industries. People who work there in non-management positions are often second earners, high school or college students, and retirees. Even for those who are attempting to support a family on these wages, it is worth noting that in rural areas, housing costs (the biggest single expense item in most budgets) per square foot can be as little as 10% of the cost of similar housing in expensive markets like Southern California and New York City. Thus, in many of Wal-Mart's smaller markets, its wages go considerably farther than many of us on the East and West Coast might think. That said, those with some ambition and in interest in advancement should be able to begin to move up in a reasonable timeframe assuming they are capable and have a decent work ethic.

Posted by: BC | Oct 2, 2006 9:04:58 PM

All hail the death of customer relations!

Posted by: Reality Man | Oct 3, 2006 12:20:40 AM

Store managers who expect employees to be on call 24 hours a day whether they want to or not should be called to account

Yeah, I'm sure that'll happen. Wal-Mart'll get right on taking managers trying to squeeze a little extra effciency out of their employees to task. It's right in their corporate character to lean to hold management to the highest possible standards of employee treatment, even at the cost of a little off the bottom line.

My four brothers were all in the UFCW while they were still in high school, working for a unionized -- and now merged-out-of-existence -- Massachusetts supermarket chain.

When I was a bagger at Market Basket (still in existence Massachusetts supermarket chain,) I had to join the union. The dues were pretty cheap too. I was weird for me though. I was 16, and didn't know what unions did or why they would take my money. The manger said I basically HAD to join.

Nevertheless...Mr. Herman, thank you for that laugh! (snark)I'm sure you'll find most liberals against allowing teens to join a union and most conservatives for it. I'm sure. (/snark)

The key sentence quoted frm the Times is the last, "the cost of an associate with 7 years of tenure is almost 55 percent more than the cost of an associate with 1 year of tenure, yet there is no difference in his or her productivity." This segways nicely into an important economic lesson, namely that wages are ultimately dependant on productivity. In other words, workers are paid roughly for the value they add. This is true for Wal-Mart, it's true at the American Prospect, and it's true for Wal-Mart's competitors. Why is Mr. Klein's ire aimed solely at Wal-Mart when all they've done is become more efficient at matching productivity with wage? Why not focus on the countless competitors and non-competitors alike that employ similarly skilled workers that don't bid up the wages for them? For after all, if another company was gobbling up these workers, Wal-Mart would have to pay more? Instead of facing the economic truth, Mr. Klein chooses to childishly point fingers. If you really want to help these workers, find a way to raise their productivity/skill-level or find a way to increase demand for their unskilled labor. Shaming the biggest player, the biggest employer; in short, the company that raises the demand for unskilled labor the most, is counter-productive.

I'm a Californian transplanted to DC, and surprisingly at peace with it. Or at least I was till it started getting colder. Job-wise, I'm the staff writer for The American Prospect. In the past, I've written for the Washington Monthly, the LA Weekly, The LA Times, The New Republic, Slate, The New York Sun, and the Gadflyer. I'm a damn good cook. No, really. Want to know more? E-mail, I'm friendly.